Yesterday’s U.S Inflation report came in softer than expected, with figures dropping from 4.2% to 3.5% when including food and energy, and figures excluding food and energy dropping from 2.9% to 2.6%. Headline inflation fell by nearly half a percent which represents the largest monthly drop since April 2020. An initial signing of a peace deal which paved the way for the reopening of the Strait of Hormuz last month eased supply concerns and led to Brent Crude Futures sliding by more than 20%, however with recent developments changing the dynamics, further escalation could lead to higher inflation over the coming months.
Although markets have scaled back their odds on a 25-basis point hike later this year, one month of lower inflation isn’t sufficient enough to give the Federal Reserve confidence prices are moving in the right direction.
The losses the Dollar faced off the back of the inflation release was capped slightly as tensions in The Middle East continue into a fourth night as a naval blockade on the Strait of Hormuz was reimplemented. Trump has recently stated that The U.S will enter into trade and investment deals with the Gulf Countries in place of getting a 20% tariff for the protection of ships through the Strait of Hormuz.
Switching our focus to today’s economic releases, The Bank of Canada have their interest rate decision this afternoon. It is widely expected rates will be kept unchanged, mainly due to price pressures falling and forecasts also go one further to currently suggest no changes will be implemented until July of next year.
Canadian Inflation does however remain to be the constant concern, with figures breaching the 3% mark in May. Which is the first time it has climbed above 3% since December 2023. But with core inflation remaining close to 2%, and Gasoline prices having fallen since the start of the war, central bank members feel there is limited evidence that the energy shock is spreading into consumer prices. This makes it less likely that The Bank of Canada will feel the need to act any time soon.
GBP/EUR 1.1711 GBP/USD 1.3385 GBP/AED 4.9181
GBP/AUD 1.9158 GBP/CHF 1.0843 GBP/CAD 1.8817
GBP/NZD 2.3008 EUR/USD 1.1413 GBP/ZAR 21.9159